Question

#1

Zeke Company sells 23,800 units at $16 per unit. Variable costs are $8 per unit, and fixed costs are $37,400. The contribution margin ratio and the unit contribution margin are

50% and $8 per unit

2% and $16 per unit

50% and $16 per unit

2% and $8 per unit

#2

Variable costs as a percentage of sales for Lemon Inc. are 63%, current sales are $502,000, and fixed costs are $186,000. How much will operating income change if sales increase by $49,800?

a.$31,374 increase

b.$31,374 decrease

c.$18,426 decrease

d.$18,426 increase

Answer 1

1.

Selling price per unit = $16

Variable cost per unit = $8

Unit Contribution margin = Unit Selling price –Unit Variable cost

= 16 - 8

= $8

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 8/16

= 50%

The contribution margin ratio and the unit contribution margin are 50% and $8 per unit

First option is the correct option

2.

Variable costs as a percentage of sales for Lemon Inc. are 63%, hence Contribution margin ratio must be 37%

sales increase = $49,800

Increase in operating income = Increase in sales x Contribution margin ratio

= 49,800 x 37%

= $18,426

Correct option is (d)